Opportunities in emerging markets
In the so-called “new normal” of sluggish economic growth, persistently low inflation, low long-term bond yields and flat yield curves in developed markets, where can investors go to find opportunities which aren't heavily reliant on these factors?
The answer might lie in Emerging Markets, where recovering economic growth and robust income generation could give rise to some interesting investment opportunities. In particular, we believe the rising working-age populations and income levels across many of these markets could drive spending across several sectors.
Low yields have presented a significant challenge to investors for a number of years. But as global growth and inflation expectations continue to fall, an increasing number of benchmark government bond yields now sit in negative territory.
Indeed, the downward pressure on major government bond yields appears to be getting worse and extending into longer-dated issuance too. Around a third of developed market government bonds globally with an estimated value of USD 7trn now have a negative yield.
High alpha investments are geared to investors seeking solutions with high active investment risk. Active investment management entrusts the investment decisions to the portfolio manager, who will actively allocate assets based on in-depth analysis.
The goal is simple - to outperform the average returns of a purely passive approach, i.e., the return obtained from simply buying the whole market (beta). A high alpha strategy aims to provide investors with a return higher than a benchmark or that which could be achieved by buying a whole market. The active risk is high, but it may offer an interesting investment option.
Navigating disruptive markets
For much of the six years following the financial crisis, risk-adjusted returns across asset classes were exceptionally high in a long-term historical context. Accommodative monetary policies provided a permanent tailwind. This has changed. The US Fed is tightening and markets have moved into a different phase of the cycle. But business dynamics have not followed the standard pattern you would expect from a maturing cycle. Actual output is below full-capacity output and there is no overheating of the economy.
We think this new phase is characterized by tail risk and higher volatility, and that investors will be well advised to redefine their optimal balance between alpha and beta exposure. After a protracted period during which beta has dominated returns we see a shift towards fund manager skills – or alpha –playing a much greater role in generating your return when navigating this evolving environment.
Modern sustainable investing, also referred to as responsible investment, is much more than a process to screen out objectionable investments. It can also be a means of creating superior returns. Our holistic approach to sustainable investing starts with the valuation of tangible financial data and models discounted cash flows to arrive at a security's intrinsic value.
This is combined with our proprietary measurement and analysis of intangible assets and non-financial information, such as sustainability data, energy efficiency initiatives and supply chain risks. We believe that this combination of traditional valuation disciplines with sustainability analysis enhances the possibilities for value-added returns.
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